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Self-employed workers must file a 1040 form and Schedule C, and complete an Annex C or Annex form depending on their business type. They must also pay self-employment tax and may be subject to assessed tax. Tax breaks and credits are available, including deductions for work-related expenses and half of the self-employment tax.
Workers can declare their self-employment income under various guidelines depending on the country of residence. In the United States, self-employment taxes must be paid on earnings over $400 United States Dollars (USD) by completing Schedule SE with Form 1040, and earnings are often reported using Schedule C. Freelancers and Independent contractors will often receive 1099 forms from their employers with their self-employment income listed for tax purposes. They can use these forms to report their earnings to the Internal Revenue Service (IRS) when they complete their tax requirements before the April 15 deadline.
Reporting self-employment income usually involves filing a 1040 form with all earned income listed from self-employment and wages. Schedule C forms should also be submitted, which should contain a full report of self-employment income and other expenses. Both independent contractors and sole proprietorships need to complete an Annex C. Farmers and fishermen who are self-employed, however, need to complete an Annex form instead of an Annex C form.
In addition, self-employment income is often subject to Medicare and Social Security self-employment tax, as well as income tax. A self-employed person must also attach a Schedule SE form to their Form 1040 to determine the amount of self-employment tax owed. Workers are responsible for the 2011 tax rate of 13.3%, which includes both the employee’s and employer’s portions of Social Security and Medicare taxes.
Some workers may also be subject to assessed tax, where they will be required to pay quarterly or monthly self-tax and possibly income tax throughout the year. They can report self-employment income and determine estimated taxes using Form 1040-ES. Self-employed individuals who will be paying at least $1,000 in taxes and whose income taxes and credits will not make up 90% of the total tax will generally need to file Form 1040-ES to pay the estimated taxes. The program will provide them with predetermined payment due dates that are spread out throughout the year.
When reporting self-employment income, workers can also start claiming various tax breaks or credits. In many cases, work-related expenses, such as home office expenses, utilities, or office supplies, can be deducted, and half of the self-employment tax can be deducted from your income tax liability when you report the incomes. Additionally, the total amount of self-employment income can be reduced by 7.65% before calculating self-employment taxes.
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